Economists React: China’s Manufacturing Sector Perks Up, Slightly

Things are looking up for China’s manufacturing sector, at least a little, according to the official purchasing managers’ index, a survey of businesses. The PMI ticked up slightly to 50.4 in April, compared with 50.3 in March. The competing PMI published by Markit Economics and HSBC also showed signs of improvement, with a preliminary reading coming in at 48.3 in April. That’s below the line that separates expansion from contraction, but still better than March’s number. The small gains may reflect an acceleration of government spending on railways and other infrastructure.

Economists share their reactions (slightly edited for style):

The improvement of both PMIs reflects that a cyclical upturn is under way supported by the recent pro-growth targeted policies, and suggests that China’s growth momentum is stabilizing … However, the export orders index declined by one point to 49.1, reflecting that the headwinds remain for China’s external sector. The State Council also announced a slew of policies, including tax rebates, to support exports yesterday. Looking ahead, while the growth outlook has improved somewhat, the downward pressures remain. – Li-Gang Liu and Hao Zhou, ANZ Bank

Data released today displayed some moderate improvement, but the improvement is not big enough to deliver an around 7.5% growth target for the whole year, in our view. We expect Beijing to implement a mini-stimulus—some small-scale growth-supportive measures focusing on special credit policy in rural areas and fiscal spending on social housing, urban infrastructure and central and western region infrastructure. – Ting Lu and Xiaojia Zhi, Bank of America Merrill Lynch

We expect to see more targeted fiscal support from the government. However, monetary policy will stay unchanged in the near term. To promote the deleveraging process among financial institutions, it is unlikely the government will aggressively ease its monetary policy. At the moment, liquidity conditions remain healthy; but looking ahead, inter-bank rates will face upside risks … Property investment will remain as the major overhang for China’s economic growth in coming quarters. – Fan Zhang, CIMB

We do not believe the economy has passed a turning point. We continue to expect growth to slow to 7.1% in the second quarter from 7.4% in the first, with risks on the downside as leading indicators in the property sector fell sharply in the first quarter. We expect the government to loosen fiscal and monetary policies in the next few months. The fiscal deficit will rise and the reserve requirement ratio will be cut…. Total credit supply as measured by total social financing will pick up too. – Zhiwei Zhang, Nomura

Accumulating evidence of stabilizing Chinese growth provides an opening for the People’s Bank of China to allow market forces to predominate in the foreign exchange market, likely resulting in the yuan strengthening to close to 6.10 per U.S. dollar in the second half of 2014 from today’s 6.24. The longer the yuan sits at this level, weaker than where it closed 2013, the more flak China’s government is likely receiving from its trading partners about that hoariest of conflicts, currency manipulation. – Bill Adams, PNC Financial Services Group

About Real Time Economics

Real Time Economics offers exclusive news, analysis and commentary on the U.S. and global economy, central bank policy and economics. Send news items, comments and questions to the editors and reporters below or email realtimeeconomics@wsj.com.